By omkar goswami Indian express 16th July 2015

Having become the 12th eurozone nation,

Greece was inundated with huge inflows of the

euro. The country grew. Between 2001 and

2007, barring a single year, Greece’s GDP

increased at rates much higher than the

eurozone average. Flooded with funds in

infrastructure, real estate and tourism, the

Greeks were breaking plates and dancing the

sirtaki like the party would never end.

There were four problems. Most of the growth

was financed by foreign debt. But who cared?

The euro was convertible and Greece was

growing fast. Second, these huge fund flows

gave successive Greek governments the excuse

to raise subsidies, pay higher salaries and

pensions and create greater public-sector

employment. By 2009, the government’s final

consumption expenditure was almost 23 per

cent of GDP, which was totally out of whack for

an economy of its size.

Third, in not a single year since joining the

eurozone did Greece meet the fiscal deficit and

public debt conditions of the SGP. Not even one

year. Not by a long shot. After the global

financial meltdown in 2007-08, neither did

France, Italy or Spain. But these were “too big

to fail”. Greece, with less than 2 per cent of the

EU’s GDP, was not.

Fourth, like most Indians, Greeks are chronic tax

dodgers. For years, the government concocted

its tax-collection data. Yet, even according to

the fabricated data, direct tax collection was 9.4

per cent of GDP versus 12.5 per cent in the

eurozone. In fact, actual tax realisation is much

worse. For instance, the government collected

less than half of its tax dues in 2012.

These four failings — escalating international

debt, an untenable public sector, huge fiscal

deficits and public debt, and poor tax revenues

— came to a head in 2010. By then growth had

disappeared; the fiscal deficit exceeded 11 per

cent of the GDP and public debt was at 146 per

cent. Greece went for the first bailout.

In May 2010, the EC, the European Central Bank

(ECB) and the IMF advanced a loan of 110

billion euros to prevent sovereign debt defaults

and cover Greece’s needs from May 2010 till

June 2013. The package required implementing

austerity measures, structural reforms and

privatisation. These weren’t effected in any

meaningful way. Then came the second bailout

in 2012 of 130 billion euros, where banks were

recapitalised and private creditors holding Greek

government bonds were forced to take a haircut

of almost 54 per cent. Even that failed. Now

there’s the third bailout of 82-86 billion euros,

spread over three years.

This “bailout” imposes a set of conditions that

Greece has never been able to meet. Between

July 15 and 22, the country must seek

legislative approval along with timetables to:

One, streamline its VAT system and broaden the

tax base to increase revenues. The 30 per cent

VAT discount for its islands must go and more

items will need to be covered by the highest

VAT rate of 23 per cent. Two, announce

measures, with dates, to streamline its pension

system and penalise people for taking early

retirement to enjoy a longer state-financed

pension-funded life. Three, safeguard the legal

independence of ELSTAT, Greece’s statistical

bureau. Four, implement all relevant provisions

of the Treaty on Stability, Coordination and

Governance in the Economic and Monetary

Union (the SGP’s new incarnation) and agree to

a particularly tough condition: If Greece cannot

meet its primary surplus target in any year, it

must automatically reduce public expenditure

even more to do so. And five, adopt a code of

civil procedure that significantly accelerates the

judicial process and allows for faster

bankruptcy.

In addition, Greece must adopt more ambitious

product-market reforms, with clear proposals

and timelines; privatise the country’s electricity

transmission network; modernise labour laws and

practices to align these with the best

international norms; strengthen the financial

sector, including by taking decisive action on

non-performing loans, and eliminate political

interference in bank appointments; develop a

significantly scaled-up privatisation programme,

under which “valuable” Greek public-sector

assets such as airlines, airports, infrastructure

facilities and some state-owned banks, currently

valued up to 50 billion euros, will be first

transferred to a new independent fund based in

Athens and then monetised through

‘“privatisations and other means”; and modernise

and strengthen Greek governance, by putting in

place an EC-overseen programme for capacity-

building and depoliticising the administration.